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MUMBAI/KOLKATA: Shares of the metals and mining companies rose sharply after it was reported that the government is contemplating lifting the ban on mining in Goa. This along with improved Chinese data in the last few days have improved the sentiment on the sector, which has significantly under-performed in the year till date.

"Sectors are globally driven and metal stocks also reflect global signs. For the steel sector, the only positive news is that inventory levels are going down in China, the government is pumping more money, banking norms are being changed to allow more lending and steps are being taken to increase consumption in China," said Seshagiri Rao, joint MD and group CFO of JSW Steel.

"The other point to note is that steel input prices too are firming up. Iron ore prices have moved up to $142 per tonne before climbing down to $137-138 levels and coke prices too have risen by almost $3-4 per tonne," he added. The fact that Europe has bottomed out and Japan's economy is improving have also added to the positive sentiment.

"The lead indicators are positive. However, it remains to be seen whether this will lead to a complete revival in the sector or not," Rao said.

Among the top gainers on the stock market were some of the Vedanta group companies that have business exposure to Goa. Sesa Goa, Sterlite and Hindustan Zinc, each gained around 10-16%, while the Nifty closed below its previous day's close. "The rise in these stocks was further supported by the fact that in case of a stake sale in Hindustan Zinc by the government, the Vedanta group will be able to increase its holdings and the cash with Hindustan Zinc will become fungible to Sterlite Industries which has a high debt." said Bhavesh Chauhan, a metals analyst with Angel Broking. Currently, the Vedanta Group owns 65% stake in Hindustan Zinc, while the government owns 30%.

Shares of other metal companies, including SAIL, JSW Steel and NMDC that also have mines in Goa or will benefit indirectly from the removal of ban, also rose sharply.

"Increased ore output would ease some cost pressure on the raw material side, which, in turn, will improve the profitability of the steel companies," said an analyst who did not want to be quoted.

Besides these, shares of Tata Steel, Jindal Steel & Power, Hindalco and Hindustan Copper also gained due to the improving sentiment. Stocks of all these companies have corrected sharply since the beginning of the year, due to concerns over slowing growth in China, the biggest metal consumer, and European markets. However, metal prices have shown some strength over the last few days, especially on the back of improving demand from China. On Thursday last week, China said that its factory output rose 9.7% in July, beating forecasts and retail sales grew 13.2%, while the inflation held steady.

The June quarter results of most of these companies were better than expected, although weaker in comparison to last year.